The objectives of this study were to estimate heritabilities within herds participating in Dairy Herd Improvement and determine the relationship of the individual herd heritability with sire misidentification rate. Individual herd heritabilities for milk, fat, and protein yield and somatic cell score (SCS) were calculated with daughter-dam regression and daughter-sire predicted transmitting ability (PTA) regression using 4,712,166 records from 16,336 herds available for August 2000 evaluations and 7,084,953 records from 20,920 herds available for August 2006 evaluations. Herd heritabilities were estimated using regression models that included fixed breed, age within parity, herd-year-season of calving, dam records nested within state, sire PTA within state, and an interaction between sire PTA and herd variance; random regression coefficients were dam records within herd and sire PTA within herd. Average daughter-dam herd heritability estimates ranged from 0.21 (SCS in 2000) to 0.73 (protein percentage in 2006), whereas daughter-sire herd heritability ranged from 0.10 (SCS in 2000) to 0.42 (protein percentage in 2006). Verification of sire identification with DNA marker analysis was provided by Accelerated Genetics and Alta Genetics Inc. Daughter-sire herd heritability was more strongly correlated with sire misidentification rate than daughter-dam herd heritability. The correlation between the first principal component for all measures of herd heritability and sire misidentification rate was -0.38 (176 herds) and -0.50 (230 herds) in 2000 and 2006, respectively. Herd heritability can be estimated with simple regression techniques for several thousand herds simultaneously. The herd heritability estimates were correlated negatively with sire misidentification rates and could be used to identify herds that provide inaccurate data for progeny testing.